Currently, the growth and cultivation of raw tobacco is governed by EU regulation and legislation under the Common Agricultural Policy (CAP). Tobacco is produced by several member countries, primarily Spain, Italy and Greece. Under the terms of CAP, producing countries are eligible to claim EU subsidies on tobacco crops. In 1998, €870m (£524m) worth of subsidies were paid out through CAP.The basic modus operandi of the CAP tobacco subsidy regime is set out in Regulation 2075/92 (as amended) with specific implementation in Regulation 2848/98, which introduced a series of reforms. The subsidy regime now pays according to three criteria – quantity produced, quality and price (previously there was a set payment per kilo). Farmers that produce higher quality receive higher subsidy payment. The system is a ‘deficiency payment’ arrangement in which premiums are paid to growers to compensate for the difference between standardised European production costs and world prices.

Article 26 of Regulation 2075/92 as amended by Regulation 1636/98 requires a review of the tobacco subsidy regime. In April 2004, the Council of Agriculture Ministers agreed to a package of reform measures including the gradual phasing out of tobacco subsidies. The reform will lead to a de-coupling of subsidies starting in 2006, to be completed by 2010. This means that subsidies will no longer be linked to production. From 2010, half of the cash currently destined for crop production will be used to fund wider rural development with the remainder being paid to farmers in the form of a single farm payment that does not encourage tobacco production.

As the European Commission proposes to phase out almost 1 billion Euro of subsidies to tobacco growing, replacing the subsidy regime with support for sustainable development. ASH looks at the background to tobacco subsidies, reasons for a phase out – and what could be done instead.

European Union Agenda 2000.The aim of the new CAP reform is to deepen and widen the 1992 reform by replacing price support measures with direct aid payments and accompanying this process by a consistent rural policy.

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